Are you receiving a raise in excess of 51% or higher this year? Most likely, the answer is no. However, that does not hold true for 11% of respondents at financial institutions the Wall Street Journal surveyed in global financial centers. Wall Street is back, and, as usual, they’re making money hand over first. Well, not exactly, but they’re paying their employees as if they were.
Three dozen investment firms and banks are planning to pay out $144,000,000,000* in compensation this year on revenue of $448 billion. As financial services are just that, a service, the value isn’t in plant, or machinery, or actual physical assets, it makes sense that the most valuable component of a bank is going to be its workforce. But, in many cases, the payout isn’t justified by performance. The projected profits for the companies in question this year is $61.3 billion. The profit for 2006, well before the financial crisis, was $82 billion, when compensation was lower. Compensation on Wall Street today, even when profits are significantly lower, pay is higher after the crisis, than before it. Today, it appears there is little relationship between performance and payouts.
The Wall Street Journal, I think, did a good job of presenting the data. But, because it’s mainly a trade paper, and a smart one at that, they didn’t say this, which I think captures what’s really going on: Wall Street is continuing to help itself to other people’s money. Profits and revenue are largely either declining or stagnant, and compensation, for reasons that are inexplicable to any reasonable person, continues to rise. If you disagree with me, that’s fine. But the fact of the matter is, that while the US economy has been through an economic meat grinder, those who work on Wall Street saw their incomes rise by 23% since 2008. At the end of the day, Wall Street is a numbers oriented trade. These numbers don’t add up.
I don’t think the government should step in. I don’t think we should have a ‘pay czar’ or some other piece of nonsense. This is the responsibility of shareholders, who at this point, ought to be screaming bloody murder at the top of their lungs at the next available opportunity. And remember, in many instances, the ‘shareholders’ include you. The single largest segment of investors in the US market is pools of retirement money managed both by private companies and state and local governments for the benefit of their retirees. This is your money, not theirs.
Try telling Wall Street that. Most likely, you’ll get a blank stare.
* Every once in a while, I like to put out the entire numerical sequence for figures of this variety, because I feel that we sometimes have forgotten just how much money is at stake. Billion is, apparently, the new million.